Spain flies as absolute yields float sovereign books

2 min read
Luke Acton

Spain secured its second-highest order book ever for a long 10-year, as rising absolute yields bolsters investor interest in eurozone sovereigns' paper.

When books closed on Wednesday at more than €87bn, with the spread tightened by 2bp to land at 10bp above its own curve, Spain was able to take €13bn via Barclays, BBVA, Citigroup, Credit Agricole, JP Morgan, and Santander.

The spread left a 4bp new issue concession, a lead on the deal said. A banker away largely agreed, putting it at 3bp-4bp.

“Before the new year, it very much wasn’t the narrative that this would be the hottest year for fixed income,” a lead on the Spain deal said. “People were worried about net supply and all sorts of different things, [and then you get] an order book and result like this.”

Sovereign issuance at the 10-year has been a particular sweet spot for investors.

“Rates are at positive levels again, so you are getting traditional buyers for fixed income,” the lead said. “And the asset swap levels are at highs [compared to] the last few years… It’s hitting the high notes for all of the decent investor groups.

“We talk about higher coupons. We talk about higher spreads. Higher quality fixed income is attracting a lot of money that had disappeared into other asset classes, whether they be alternatives, equity, whatever.”

That Spain offered a new issue premium help, too, the lead said: “It shows you how many buyers are willing to put in their maximum sizes if you approach things with this sort of tactic.”

Spain is not the only name benefiting from the interest that positive levels are generating for fixed income products.“Something we’ve seen from most sovereigns this year is that the book sizes have been quite large,” said the banker away from Spain’s deal, pointing to the Austria trade and a couple of others that all had large books. The credit spread widening in terms of asset swap spreads and such have clearly been helping demand.

“The bank treasury component, in the statistics at least seems, to be more constructive.”

Only the €15bn 1.25% October 2030 bond that Spain priced in the height of the Covid market disruption and QE support in April 2020 got more interest, getting a €96.5bn book.

The new deal funded more for Spain more than the €10bn it has taken from its January 10-year syndications in the last five years.